Thursday, February 17, 2011

Mr. Govind Shrikhande, Customer Care Associate & Managing Director, Shoppers Stop Ltd

The budget is undoubtedly the most important policy event of the Indian policy calendar. Someone once said, “A budget should not aspire to be a dream budget- dreams are ephemeral- but should aspire to be a good balancing act.” The Union Budget for FY11 had successfully managed to address a gamut of growth impediments – from structural supply chain gaps in agriculture, funding constraints to infrastructure, continuing trust on rural development, etc.

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  1. For retailers, on one hand the Finance Minister had given clarity on likely introduction of DTC ( Direct Tax Code) & GST (Goods and Services Tax) by April 1, 2011, on the other hand the Finance Minister had made only a reference to Prime Minister's remarks on opening up of retail trade without announcing any further policy change in this regard. Keeping in mind the current domestic and global scenario, we hope the forthcoming Budget is big on tax reforms for retailers.
    The Indian retail industry is the fifth largest in the world, where 95% of it is unorganized. With growing market demand, the industry is expected to grow at a pace of 25-30% annually and it accounts for over 10% of the India's GDP, and around 8% of the employment. To sustain the retail growth in India there is a need for stimulus from the Finance Ministry in the upcoming budget. Top on the list of pre-budget expectations is the retail industry’s long standing demand of giving it a separate industry status with its own ministry. This decisive step will be truly reforming in organizing this highly unorganized sector.
    Government needs to create a budget which will be a win-win for retailers and customers alike. This can be achieved by providing the benefits of growth in the retail sector directly to the retailers. While GST is yet to be introduced, imposition of service tax on rentals adds severe burden on us, costing 1-1.5% of our annual turnover. This is a big amount considering that retail itself is a 'three percent profit' business. Also, due to the high cost of occupation in India (as high as 12% of the turnover), the retail business has many hindrances to its growth. This is in sharp contrast to the average cost between 3% and 5% across the world.
    Hence, service tax elimination and implementation of good and service tax (GST) should be considered in this Union Budget. It will be ideal to adopt a single rate structure with a common rate for goods and services. Such a tax regime will benefit both the retailers and consumers as the streamlining of taxes will help reduce the retail prices of most of the items. The latest global consumer confidence survey by research firm Nielson Co. suggests that Indians are likely to cope with rising living costs by cutting back spending on new clothes, out-of-home entertainment and utilities such as power and cooking gas.
    Another important topic of discussion for a while now has been 100% FDI in retail. Allowing FDI into the sector would help reduce the gap between prices of a commodity from farm to fork. India's infrastructure development needs are vast and there is scope for development of retail and logistics .It is a well known fact that, even the Tier 1cities in India lack proper infrastructure. Large investments in infrastructure would lead to a rise in farm productivity, manufacturing, processing and cold storage facilities. This would cut down wastage caused due to difficult road connectivity and spurt growth in employment, exports and GDP. This would also help revive textile and handicrafts sector. With appropriate control in place, our exports can double in three years. So clearly FDI is only going to benefit customers, economy and infrastructure. Our experience in telecom, automobile, insurance sector clearly shows the success of FDI policy.
    As our honorable Finance Minister concluded his Budget 2010 speech by quoting "Our actions today will determine our tomorrow". I sincerely hope that finance minister will act deftly by successfully implementing the GST and reducing import tariffs, thus, helping the industry witness robust growth in the near future.

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